Categories: Base Metals / Energy / General Market Commentary / Precious Metals
Topics: General Base Metals / General Energy / General Market Commentary / General Precious Metals

How to Increase Your Odds at a Gold Ten-Bagger

How to Increase Your Odds at a Gold Ten-Bagger

Written by Nick Hodge

Finding an economically viable deposit of metal is an incredibly rare thing.

Be it antimony or zinc, when an exploration company makes a discovery that has an actual shot at being mined, its shares can spout off for gains of 10X or more.

But it is incredibly risky.

As we’ve said repeatedly in this letter, most mining stocks are garbage. They won’t find or develop anything and shareholders’ capital will go to money heaven.

Of the 10,000 mineral properties being explored for precious metals at any time around the world… only one of them will result in a discovery greater than four million ounces annually.

Can you pick the one in 10,000?

I can’t.

The Prospect Generator Model

To spread the risk and get more shots on goal at making a discovery, in the late 1990s mining financier and fund manager Rick Rule, exploration geologist Brent Cook, and broker Paul van Eeden pioneered a new model called ‘prospect generating’.

Instead of funding a company with one project to drill, which put all the eggs in one basket that we know has a one in 10,000 shot at making a big discovery…

The funded companies that would stake multiple projects, usually in a jurisdiction in which they were geologic experts, and then joint venture or option those properties to other companies to explore, retaining a minority position in each along the way.

So instead of owning all of a single company with a single chance to make a discovery… they owned a small piece of many properties with a chance at a discovery.

Since other companies pay to develop its properties… the prospect generator has no funding risk, yet still gets to participate in the upside if any discovery is made.

The Results

Though highly successful, the model still remains a tiny portion of the mining industry. As of 2015, companies using the model had a combined market cap of just US$700 million.

I guess people are confident enough they can pick the one in 10,000, as hubristic as that may seem.

Indeed, the prospect generator model has generated massive wins in recent years.

Shares of Virginia Mines rose from ~C$2.00 in 2009 to more than C$16.00 in 2015 — when it was acquired by Osisko for C$1.3 billion.

To continue reading please click link http://www.outsiderclub.com/how-to-increase-your-odds-at-a-gold-ten-bagger/2248